Accumulate Hindustan Unilever; target of Rs 2785: Prabhudas Lilladher

Prabhudas Lilladher's research report on Hindustan Unilever

We cut our FY24/25 EPS by 6.9%/5.0% factoring in 1) focus on volume led growth 2) delayed recovery in gross margins and 3) increase in A&P spends (390bps cut from FY20 levels). Competitive intensity has increased in the space given moderation in RM basket. HUL continues to guide for QoQ GM/EBITDAM improvement with stabilizing inflation, narrowing cost price gap and calibrated price cuts to restore price-value equation. Rural markets continue to lag urban, however pace of sequential volume improvement in bodes well for upcoming quarters. 4Q23 saw mid-single volume growth led by double digit volume growth in Home Care, Skin Cleansing and Coffee.

Outlook

We expect GM/EBITDAM improvement of 510/160bps over FY23-25 given stabilizing RM basket & premiumisation trends. We estimate 13.0% Sales and 17.9% PAT CAGR over FY22-25 and assign a DCF based target price of Rs2785 (Rs2800 earlier). Pick up in volume growth remains a key near term trigger. The stock trades at 44.3xFY25 EPS. Retain Accumulate.